The Hutchison Essar Acquisition: Vodafone's Foray into an Emerging Market
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Case Code: BSTR275 Case Length: 15 Pages Period: 2006-2007 Pub Date: 2008 Teaching Note: Available |
Price: Rs.300 Organization: Vodafone, Hutchison Essar Industry: Telecom and Broadband Countries: India, UK Themes: Mergers, Acquisitions, Strategic Alliances, Growth Strategy |
Abstract Case Intro 1 Case Intro 2 Excerpts
"With limited growth prospects in Vodafone's core European markets, Sarin's No. 1 job right now is to convince investors that he has a viable long term growth strategy. And gaining control of a fast-growing operator in India is the best opportunity he has to do it."
-John Delaney, principal analyst at Ovum,in January 2007.
"The announcement is a clear evidence of how we are executing our strategy of developing our presence in the emerging markets. Hutch Essar is an impressive, well-run company that will fit well into the Vodafone Group."
-Arun Sarin, CEO, Vodafone Ltd., in February 2007.
"We exit the Indian market as one of the best capitalized telecom companies in the region which will enable us to react swiftly to new opportunities and to accelerate growth in our existing markets."
-Canning Fok, Chairman, Hutchison Telecom International Limited, in May 2007.
Vodafone's Foray into India
On February 11, 2007, the Vodafone Group Plc (Vodafone), a UK-based telecom company, declared that it had finally bagged the fourth largest Indian mobile operator, Hutchison Essar Ltd. (HEL). This announcement ended an acquisition battle - probably the most ferociously fought - in the Indian telecom sector. Vodafone bought a 52% stake in HEL for US$11.1 billion from Hutchison Telecom International Ltd. (HTIL); 33% stake was still held by the Essar Group (Essar). The company was valued at US$19.3 billion. Vodafone won the battle against other major competitors in the fray like Reliance Communications Ventures Ltd. (Reliance), Essar and the Hinduja group.
The deal, the biggest ever in the Indian telecom industry, came after the Indian government's (GoI) decision in 2006 to raise the limit on foreign direct investment (FDI) in the telecom sector from 49% to 74%. The deal was expected to infuse much-needed FDI into the sector to meet the government's targeted numbers of 500 million customers by 2010. Industry and government circles welcomed the deal and said that it would give a big boost to the telecom sector. It would help not just by capital infusion into the sector, but also by bringing in Vodafone's experience in operating telecom networks.
HEL was the fourth biggest player in the Indian telecom sector with a subscriber base of 29.2 million in July 2007. HEL had a pan-Indian presence with a presence in 13 of the total 28 circles in the country. HEL also had the second highest average revenue per user (ARPU) of Rs.340.15, second only to the market leader Bharti India Ltd. (Bharti Airtel) which had an ARPU of Rs.343.17. India was, in 2007, the fastest growing mobile market in the world unseating China which used to occupy the top slot. The Foreign Investment Promotion Board (FIPB) gave its nod to the acquisition on April 27, 2007, after having deferred the decision on the issue of FDI limits allowed in the telecom sector three times...
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